Playing with fire : deepened financial integration and changing vulnerabilities of the global south

Description

Starting in the early 1990s many emerging and developing economies (EDEs) liberalized their capital accounts, allowing greater freedom for international lenders and investors to enter their markets as well as for their residents to borrow and invest in international financial markets. Despite recurrent crises, liberalization has continued and in fact accelerated in the new millennium. Integration has been greatly facilitated by progressively looser monetary policy in the United States, notably the policies that culminated in debt crises in the United States and Europe and the ultra-easy monetary policy adopted in response. Not only have their traditional cross-border linkages been deepened and external balance sheets expanded rapidly, but also foreign presence in their domestic financial markets and the presence of their nationals in foreign markets have reached unprecedented levels. As a result new channels have emerged for the transmission of financial shocks from global boom-bust cycles. Almost all EDEs are now vulnerable irrespective of their balance-of-payments, external debt, net foreign assets and international reserve positions although these play an important role in the way such shocks could impinge on them. This is a matter for concern since the multilateral system still lacks mechanisms for orderly resolution of financial crises with international dimensions. Playing with Fire provides an empirical account of deeper integration of EDEs into the global financial system and discusses its implications for stability and growth, focusing on the role of policies in the new millennium in both EDEs and the United States and Europe. Content: Cover Playing with Fire: Deepened Financial Integration and Changing Vulnerabilities of the Global South Copyright Preface Contents List of Figures List of Tables List of Acronyms Introduction 0.1 Global Economic Landscape and Prospects 0.2 Misguided Policies in the US and Europe 0.3 Secular Stagnation, Savings Glut and Underconsumption 0.4 The Internationalization of Finance in EDEs 0.5 External Balance Sheets 0.6 Low-yielding Assets, High-yielding Liabilities 0.7 Foreign Presence in Equity and Debt Markets 0.8 Private External Debt and Exposure to the Currency Risk 0.9 External Vulnerability0.10 Where Next? Part I: The Financial Crisis, Policy Response, and the Global South 1: Policy Response in Advanced Economies: Neo-liberal Fallacies and Obsessions 1.1 Why Is the Crisis Taking Too Long to Resolve? 1.2 The Debt Overhang 1.3 Fiscal Orthodoxy 1.4 The Ultra-easy Monetary Policy 1.5 Peopleś Quantitative Easing: The Case for Helicopter Money 1.6 Secular Stagnation 1.7 Inequality, Financialization, and Underconsumption 2: Spillovers to the Global South 2.1 Decoupling and Recoupling 2.2 The Commodity-Finance Nexus 2.3 Financial Spillovers 2.4 The Global Crisis and Commodity Prices2.5 Conclusions: Reorienting Policies Part II: Internationalization of Finance and Changing Vulnerabilities in Emerging and Developing Economies 3: Deepening Integration 3.1 Factors Accelerating Financial Integration 3.2 Expansion of External Balance Sheets 3.3 Gross External Assets 3.4 Equity Inflows and Markets 3.5 External Debt 3.6 Public Commercial Debt 3.7 Private Debt 3.8 Foreign Banks: Cross-border and Local Lending 3.9 Summary and Conclusions 4: External Vulnerabilities 4.1 Exchange Rate Flexibility, Capital Flows, and External Vulnerability4.2 Reserve Accumulation: How Much Self-insurance? 4.3 Sovereign Debt and Financial Stability 4.4 Foreign Banks and Financial Stability 5: Crisis Management and Resolution 5.1 Sovereign Debt Workouts 5.2 Domestic Sovereign Debt 5.3 Banking Crises and Restructuring 5.4 Conclusions Part III: Foreign Direct Investment and Economic Development: Myths and Realities 6: Foreign Direct Investment: Its Nature and Impact on Capital Formation and Balance-of-Payments 6.1 What Is FDI? 6.2 FDI and Capital Formation 6.3 Stability of FDI6.4 Contribution to Balance-of-payments: Net Transfers 6.5 Trade and Income Transfers by TNCs 7: FDI, Industrialization, and Development: Role of Policy 7.1 Technological Spillovers 7.2 Multilateral and Bilateral Constraints Over Investment Policy 7.3 Conclusions: Policy Lessons Conclusions References Index